1. What the Apprenticeship Levy is
The Apprenticeship Levy is a 0.5% tax on the UK pay bills of larger employers. It was introduced in April 2017 to fund expansion of the apprenticeship system. It works as a hypothecated pot — money you pay in can only be spent on apprenticeship training, not general government spending.
The thinking: employers know their skills gaps better than central government, so let them direct the spend. In practice that means every levy-paying employer has a digital account on the government's apprenticeship service with money in it, ready to use.
2. Who actually pays it
The 0.5% applies to your annual pay bill — broadly your Class 1 secondary NIC earnings. Every employer gets a £15,000 allowance per year, so in practice you only pay the levy on pay bill above £3 million.
The math:
If your pay bill is £4m, you pay £20,000 − £15,000 = £5,000 a year. If your pay bill is £10m, you pay £50,000 − £15,000 = £35,000 a year. If it's under £3m, you pay nothing.
3. If you're a levy payer
Your levy goes into a digital account on the GOV.UK apprenticeship service. The government adds a 10% top-up on what you put in — £1.10 of spending power for every £1 of levy paid.
You then draw down from this account whenever you start an apprentice. Training providers like CPD invoice your account directly — you never see the money flow, just an apprenticeship starting.
The 24-month rule: any levy money you don't use within 24 months expires. It goes back to HMRC for redistribution. This is the lever for getting employers to actually use it.
In 2023-24, around £4bn of unused levy funds expired and were returned to the Treasury. That's training that could have happened and didn't. If you're a levy payer, that's the worst possible outcome.
4. If you're a non-levy employer
For pay bills under £3m you don't pay the levy at all. But you can still take apprentices. The government covers 95% of the training cost — you co-invest the remaining 5%.
For a Level 3 digital apprenticeship (£18,000 funding band), that's £900 spread over the length of the apprenticeship — typically monthly instalments while training is happening.
If your apprentice is 16–21 at the start of their apprenticeship, the government covers 100% — you pay nothing for the training. There are similar 100% provisions for some other groups (care leavers, EHCP holders).
5. Levy transfer — how it works
Levy payers can transfer up to 50% of their annual levy to support apprenticeships at other businesses. The receiving business doesn't need to be in your supply chain — it just needs to be a real employer wanting to run a real apprenticeship.
Transferred funds cover 100% of training cost — there's no 5% co-investment for the receiving business. For an SME, this is the cheapest way into apprenticeships.
CPD operates a levy transfer matching service. If you're a levy payer with unused funds you'd like to direct toward Brighton creative-tech SMEs, talk to us. If you're an SME wanting to receive a levy transfer, same — we have employers ready to give.
6. Funding bands by apprenticeship
Each apprenticeship standard has a maximum funding cap set by the government. Below that cap, training providers negotiate their actual price. For CPD's digital apprenticeships:
| Apprenticeship | Level | Funding cap |
|---|---|---|
| AI & Digital Marketing | 3 | £18,000 |
| AI Specialist | 4 | £21,000 |
7. Worked examples
£5m pay bill. Hiring one L3 marketing apprentice.
- · Annual levy paid: (5,000,000 × 0.5%) − 15,000 = £10,000
- · Levy account balance after 12 months (with 10% top-up): £11,000
- · Cost of L3 apprenticeship: £18,000 (drawn down over 14 months from the account)
- · Net training cost to the business: £0
- · Wage cost (apprentice paid £21k pa over 14 months): ~£26,250
- · Levy unused after first year: still >£3,000 going to your account, useful for the next apprentice or a transfer
£1.5m pay bill. Hiring one L4 software developer apprentice.
- · Annual levy paid: £0 (under £3m threshold)
- · Cost of L4 apprenticeship: £21,000
- · Government covers 95%: £19,950
- · Your 5% co-investment: £1,050 over 24 months — about £44/month
- · OR: receive a levy transfer from a larger business → £0 training cost
- · Wage cost (apprentice paid £25k pa over 24 months): ~£50,000
£25m pay bill. Hiring three apprentices.
- · Annual levy paid: £110,000
- · Three apprentices (2× L3 + 1× L4): training cost £57,000
- · Levy used: £57,000 from a £121,000 spending pot (with top-up)
- · Unused levy expiring in 24 months: £64,000+
- · Recommended: transfer up to 50% to SME partners or sector charities. Use the rest on additional apprentices in your own team or boards.
8. What the levy pays for (and doesn't)
- · Off-the-job training (the 1 day a week with us)
- · On-the-job coaching from the provider
- · End-Point Assessment
- · Learning materials and platforms
- · Tutor and assessor time
- · The apprentice's wages
- · Travel and subsistence
- · Statutory licences or memberships
- · Equipment (laptops, software seats your team uses)
- · Functional Skills retakes beyond the included allocation
9. Common mistakes we see
- 1Letting levy expire. A surprising number of large employers pay the levy and then never use it. £4bn returned to HMRC last year alone. Set a reminder before the 24-month deadline.
- 2Calling it a graduate scheme. Apprenticeships have to be genuine progression — substantial new skills, sustained learning, formal qualification at the end. Don't rebadge a normal junior role and assume it's funded.
- 3Picking the wrong standard. The standard chosen drives the curriculum, the EPA, and the funding band. Get this wrong and you'll pay for training your apprentice doesn't need. We help match the right standard to the actual role.
- 4Underpaying. Apprentice minimum wage is the floor, not the target. Apprentices paid the absolute minimum tend to leave. Most CPD-placed apprentices are paid £18–22k year one, rising on completion.
- 5Forgetting the off-the-job day. 20% of working hours must be spent off-the-job in training. That's protected by law and audited. Don't agree to it then dilute it with workplace demands.